Social Networking Bubble?

Despite the perceived success of MySpace, there are skeptics of social networking business models. BusinessWeek brings up the possibility that we're in a social networking bubble that is reaching saturation while ad models remain somewhat shaky.

From the article:

For many sites, the challenge begins with persuading advertisers that their investment will be rewarded with sufficient views by users. What’s more, with so many social networks vying for attention, retaining users can be problematic. Amid these difficulties, some observers anticipate a brighter future for smaller niche networks that bring together users with common interests.

Chris Charron, a vice-president at Forrester Research, says some advertisers aren’t all that interested in social networks. User-generated content, which dominates these sites, is a tough sell to companies that can’t control the material with which their brand is associated. That’s all the more the case when content is racy, as personal profiles often are.

Though the page view and retention issues may not apply to MySpace (yet), the site's average user age is 18 and it largely appeals to a teenage demographic that can be somewhat fickle and swayed easily by effective viral marketing:

… members have little loyalty to any given social network and will switch if something better comes along, or when pals jump ship, the article says.

This statement has some truth but forgets the fact that social networks do have some degree of stickiness, as users have a sunken time investment in having set up their personal, pages, preferences and networks among which their username and other attributes are known by their friends. In other words, the name of the game for competitors of MySpace — such as the newly launched Tagged — is not to attract each user away from MySpace, but to attract a critical mass of networked users that will create a domino effect of others that will follow. It is after all a social network.

The article brings up the potential of more niche-oriented networks such as TripConnect, which brings social networking and user-generated content to the travel vertical. The business case here is that it is easier to attract advertising and easier to contextualize it around user conversations:

Raj Kapoor, a managing director at Mayfield Fund, which led a $7 million investment in teen-focused Tagged, concedes that no one has developed an ideal way to target ads around user-generated content. "At the end of the day advertisers want to find a way to do it," since teens spend so much time browsing their peers’ profiles, blogs, and other dispatches.

But with something more niche-oriented like TripConnect:

"The site uses social networking in such a way that users are "directly influencing each other’s purchase decisions," he notes. That’s "not something you find when people are chatting about bands."

So are vertically oriented social networks better off than broader ones? The same question faces search, online shopping and even classifieds. The question is still being hammered out in those more mature industries where lots of factors weigh in, so it will be a while before a clear answer is discerned about social networking models. But if we are in a social networking bubble, an impending shakeout will get us closer to an answer.